Norwegian fund excludes Genting, Daewoo, Posco and IJM over palm oil

[OSLO] Norway's gigantic sovereign wealth fund announced on Monday it was divesting from four large Asian companies over the environmental damage their palm oil activities have on tropical forests.

The world's largest public investment fund, managing 7.15 trillion kroner (S$1.22 trillion), said its decision to exclude four groups - including South Korean group Daewoo International - from its portfolio was based on "an assessment of the risk of severe environmental damage" from their conversion of tropical forests to cultivate palm oil.

Daewoo, South Korean steelmaker Posco and Malaysian groups Genting and IJM were targeted in the divestment decision by Norway's central bank, which manages the wealth fund that owns around 1.3 per cent of all stocks on global equity markets, with stakes in about 9,000 companies.

The fund manages its investments according to strict ethical guidelines that have previously led it to exclude around 60 companies from its holdings, including Airbus, Boeing, Safran, Philip Morris and Wal-Mart.

Under the guidelines, it must avoid investments in groups accused of serious violations of human rights, child labour or serious environmental damage, as well as manufacturers of "particularly inhumane" arms and tobacco firms.

The decisions by the fund - which draws investment money from Norway's huge oil revenues, a fact that hasn't escaped some detractors - are frequently replicated by other international investors concerned about ethical perceptions of their holdings.

Palm oil - used primarily in the cosmetics, food, and bio-fuel sectors - is a controversial industry, with campaigns mounted by environmental groups and consumers.

Daewoo fell afoul of the fund's managers for its 85-per cent stake in an Indonesian company accused of clearing large swathes of the country's tropical forest for palm oil cultivation.

At the end of 2014 the fund owned 0.91 per cent of Posco worth US$198 million at the end of 2014, and 0.28 per cent of Daewoo valued at US$9 million.

Its 0.4-per cent stake in Genting was worth around US$41 million, and its 1.6-per cent position in IJM was worth US$46 million.

Independently of the ethical guidelines, the fund has in recent years put increasing emphasis on environmental issues in its investments, noting that problems such as deforestation and water management can affect a company's financial viability.

In early 2012, it pulled out of 23 palm oil producers, without naming them.

Indonesia and Malaysia together account for about 80 per cent of global production, though the industry is growing rapidly in Africa.

In order to improve practices, palm oil producers, distributors and non-governmental organisations in 2004 created the Roundtable on Sustainable Palm Oil (RSPO), an association whose charter bars producers from clearing old-growth forests or other conservation sites for cultivation.

Neither Daewoo nor Posco are members of RSPO. Palm oil represents only a small fraction of Daewoo's and Posco's overall businesses.

"This is a sign that the fund takes the issue very seriously," said Nils Hermann Ranum of campaign group Rainforest Foundation Norway.

Genting and IJM are RSPO members but have been accused of not respecting its guidelines and not being transparent enough.

"This shows that RSPO is archaic when it comes to environmental certification," Ranum said.

"If it still wants to be taken seriously, it needs to tighten up its regulations." Norway's pension fund is intended to pay for future generations in the welfare-state after the country's oil wells run dry.

AFP